The short and medium-term lender said it has seen significant uplift in Agreements in Principle (AIPs) in the lead up to the introduction of new affordability regulations, introduced by the Prudential Regulation Authority (PRA) on 1 January.
In the last three months of 2016 it issued 233 AIPs, up 115% from 108 in the same period of 2015. In the first eight days of January it issued 32 AIPs for buy-to-let loans.
Octopus said the PRA’s new affordability regulations make it increasingly difficult for landlords to finance buy-to-let projects through mainstream lenders due to enhanced stress-testing, changes to underwriting requirements and uncertainty as to how the new rules should be enacted.
“The buy-to-let sector has changed fundamentally over the past year or two. Alongside the raft of tax changes, financing for landlords has become considerably more challenging,” said chief executive of Octopus Property Mario Berti (pictured).
This is especially the case with larger loans and ‘non-standard’ borrowers with unconventional circumstances, such as semi-commercial, rental shortfalls, first-time landlords, Houses of Multiple Occupancy (HMOs), foreign nationals and company.
“This is almost certainly the reason for the surge in demand for our buy-to-let products in the latter stages of 2016 and early days of 2017.”
He added: “We cater for buy-to-let borrowers with less conventional circumstances that need more bespoke underwriting and for whom the high street has become a more difficult place to borrow, all the more so since the new regulations came into force on 1 January. It’s in this type of conservative lending climate that specialist lenders like ourselves can outperform.”
One of the main products offered by Octopus is a two-year product charging 6.99%, where borrowers can choose to defer 2% of the interest payable, creating an effective pay rate of just 4.99%. This product applies an Interest Cover Ratio (ICR) of 100% of pay rate.
Berti recently speculated that 2017 could see a landlord retreat similar to that of 2009.